A statista report shows that as of August 2023, inflation is the most important problem facing the world. What this means is that the problem on our hands is not just a Nigerian or African issue. It is global.
However, the rate at which inflation is rising within Nigeria is quite alarming. Currently, we’re experiencing the highest inflation rate in the past 18 years. According to the Consumer Price Index (CPI) and Inflation Report released by the National Bureau of Statistics (NBS), Nigeria’s headline inflation rate rose from 22.41% in May 2023 to 22.79% in June 2023 and in August 2023, we saw it climb to 25.80%.
Inflation As It Impacts Nigerian Tech Startups
While the food sector is experiencing the highest inflation rate in the country, every other sector is experiencing a fair share.
In the Nigerian tech startups ecosystem, we’ve seen far too many startups shut down, pivot, or downscale as a result of the current economic climate.
The Challenges
Raising funds to grow and scale businesses has become more challenging than ever. In fact, reports show that African startups raised only about $4.1bn as of June 2023 compared to the $6.5bn raised in as of June 2022. In the same report, Nigerian startups were only able to raise $470m between July 2022 and June 2023, a decrease from the $2bn they raised between July 2021 and June 2022.
In 2022 Q1 about 175 startups secured funding. But Q1 2023 only had about 87 funded startups. This goes to show that aside from the decrease in people’s purchasing power, investors are also wary about doing business due to the uncertainty and unpredictable economy.
Stepping aside from funding issues, tech companies also struggle to increase their product prices due to fear of losing their customers. This leaves many of them to run at a loss leading to even more employee layoffs and a decline in their product and service quality.
With the unpredictable economy, financial planning and budgeting have become tougher. And even tech companies themselves are now more cautious in spending and purchasing tools or services needed to effectively run their businesses. This is leading to a reduction in demand.
The Way Forward for Startups
- The government has a huge role to play in cushioning the effect of inflation on startups and their customers. Making Nigeria conducive for local and foreign investments is non-negotiable.
- Diversify your income by introducing new products and services
- Reduce expenses and the cost of running your business at the same time (i.e. earn more than you spend)
- Embracing collaboration. Mergers between startups will be a great way to pool together their resources and become a stronger force.
- Improving strategies for customer acquisition. Startups need not attract customers with free plans only to introduce hidden fees or charges along the line. What this does is you lose your customer base altogether and hurt your bottom line more)
- Adjust pricing fairly. Startups should adjust their prices accordingly to ensure they are still affordable but not running at a loss. They can also explore the option of subscriptions to accommodate customers with a lower purchasing power.